SunTrust, Synovus and Regions — What to Look for in Their 1Q Reports

Earnings season winds down for big banks next week with first-quarter reports from three banks in the Southeast that have been slow to shake off their troubles: SunTrust Banks (STI), Synovus Financial (SNV) and Regions Financial (RF).

Wall Street expects each to show progress, says Frederick Cannon, the director of research for Keefe Bruyette & Woods.

"We generally think that those banks should post reasonably good numbers," Cannon says. "Credit generally in the Southeast is improving and we're seeing a little bit of loan growth down there."

The Southeast was relatively late to suffer from the real estate problems felt elsewhere in the country so it has naturally been later to recover, he adds.

Market watchers expect SunTrust to report on Monday an increase in commercial and industrial loans — even as profitability continues to lag because of elevated mortgage repurchase expenses and real estate loan runoff. Investors and analysts also will be looking for reductions in expenses and provisions for loan losses, and for the Atlanta bank's management to elaborate on the rejection of its capital plan by regulators in March.

Synovus, of Columbus, Ga., and Regions, of Birmingham, Ala., are scheduled to report on Tuesday.

Birmingham-based Regions is expected to report further declines in lending as commercial real estate runoff outpaces increases in C&I loans. Seasonally higher insurance commissions and fees, coupled with mortgage-related income, are expected to have translated into higher fee income in the quarter.

Regions on April 4 repaid its $3.5 billion in outstanding aid from the Troubled Asset Relief Program. With that uncertainty removed, market watchers will be shifting their focus from Regions' legacy capital issues to its prospects for higher profitability and revenue.

Observers will be looking for sustained profitability from Synovus. The company reported a third-quarter profit of $15.7 million — its first quarterly profit in more than three years. It followed that with earnings of $27.4 million in the fourth quarter.

Investors and analysts hope to see continued credit quality gains and a stabilization of its balance sheet as declines in commercial real estate are offset by growth in C&I and consumer loans. Synovus still owes Tarp $968 million, which it is not expected to repay until 2013.

The first quarter appears to have been good for most large and midsize banks, Cannon says. Fixed-income trading and mortgage production was solid. There was modest loan growth and net interest margins were stable as banks invested excess cash.

"The first quarter was a solid one for the banks," Cannon says. "The real question is sustainability."